How to Invest in Inflation-Protected Bonds.

By The Exchange Team

Bonds, especially inflation-linked TIPS, have had a rough year. TIPS offer diversity despite recent losses, experts argue.

TIPS are U.S. government-backed bonds having five-, 10-, or 30-year durations and twice-yearly payments based on the assets' value, which adjusts every six months for inflation.

Bond values and market interest rates move in opposite directions, dropping TIPS values when the Fed raised rates.

iShares TIPS Bond ETF+ is down 13% year to date as of Oct. 10. TIPS have outperformed the S&P 500 Index+, which is down 24%.

TIPS investors focus on ‘capital preservation’. TIPS investors, especially those nearing retirement, are motivated by "capital preservation," says David Enna, founder of Tipswatch.com.

"They're a lot less unsafe now than they used to be," Enna added. "And they're certainly less dangerous right now than the stock market."

“It's good to have a mix of fixed income,” said Enna, who holds both short-term and individual TIPS.